The auction program is the trade portion of the cap-and-trade system devised under the 2006 bill, AB 32. Under a cap and trade system, emitters are given allowances of greenhouse gases that they may opt to use or sell. The auction creates the market for trading these unused allowances.

The market has a soft opening where the emitters are given 90 percent of their allowances for free. The giveaway is intended to give companies time to reduce their emissions prior to the opening of the market. These allowances will be reduced over time as the State aims to reduce greenhouse gas emissions to 1990 levels by 2050.

The California Air Resources Board set the minimum price on each allowance at $10. Over time the price will likely increase as the cap tightens and less allowances are available. The revenue generated by the state through the auction will be used to further reduce greenhouse gas emissions in California. The program is expected to generate $1 billion per year for 2012 and 2013.

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The auction opening survived a last-minute lawsuit brought by the California Chamber of Commerce attempting to block the sale of allowances. The Chamber of Commerce argued that the California Air Resources Board does not have the authority under AB 32 to raise money beyond what is required to cover their administrative costs through the sale of greenhouse gas allowances.

The sale was conducted entirely online between covered entities that were required to submit bids in 1,000 allowance segments. Each allowance equals one metric ton of emissions. The auction covered 2013 and 2015 vintage allowances, referring to the first year that each allowance could be used.

The AB 32 system covers 360 California manufacturers, utilities, and other businesses who represent approximately 600 greenhouse gas emitting facilities in the State.